What I Saw Last Week
The NAHB Housing Market Index met my expectations by rising one point to 61 and is now at its highest level in 10-years.
The fact the builder confidence has been in the low 60’s for three straight month’s shows that single-family housing is making slow but steady progress. The report is consistent with my forecast for a gradual strengthening of the single-family housing sector through the rest of the year.
U.S. Building Permits in July were at a seasonally adjusted annual rate of 1.119 million, which was 16.3% below the revised June rate of 1.337 million (from 1.343M). I had forecast a drop to an annual rate of 1.257M.
The big surprise here was that single-family permits dipped 1.9% to 679,000. To make matters worse, there was an expiration of a tax break for multi-family developers in New York, which put a serious drag on permit applications. That was evident in the fact that total permits in the Northeast were down 60.2% from the prior month.
U.S. Housing Starts ran at a seasonally adjusted annual rate of 1.206 million, up 0.2% from an upwardly revised 1.204 million rate (from 1.174M) in June. I had forecast a figure of 1.2M units (SAAR).
The upshot of this report is that the increase was powered by starts of single-family homes which jumped 12.8% to 782,000, with increases seen in all regions. The Northeast was by far the strongest with a 66.7% increase in single-family starts, followed by the Midwest (+20.0%), the West (+16.6%), and the South (+3.8%).
The July Consumer Price Index produced some headline disappointment with both total CPI and CPI, excluding food and energy, increasing just 0.1%. I was expecting an increase in the core rate of 0.2%.
The stability of core CPI might be construed as a basis for the Fed to rationalize a rate hike in the near term considering one side of its dual mandate is price stability. In this regard, market participants aren’t necessarily viewing the headline readings for July as a friendly surprise when it comes to thinking about the Fed’s monetary policy.
U.S. Initial Unemployment Claims for the week ending August 15 were 277,000, up from the prior week’s downwardly revised level of 273,000 (from 274,000). I was looking for a drop to 272,000.
With the latest week’s data, the four-week moving average for initial claims increased by 5,500 to 271,500, which is still near multi-decade lows. Initial claims have been bounded between 250,000 and 300,000 for the better part of the last year. The latest report, which covers the week in which the household survey for the August Employment Situation report was conducted, fit that trend and suggests non-farm payroll gains should again exceed 200,000.
U.S. Existing Home Sales increased to a seasonally adjusted annual rate (SAAR) of 5.59 million units in July, up 2.0% from the prior month’s downwardly revised level of 5.48M (SAAR). I was hoping for a figure of 5.42M (SAAR).
Sales in July were at their highest level since February 2007 and were up 10.3% from the year-ago period. That marked the tenth consecutive month in which existing home sales increased year-over-year.
The share of first-time buyers fell from 30% in June to 28% in July, which is the lowest share since January. That lackluster participation reflects the challenging conditions (qualifying for a mortgage, saving for a down payment, flat wage growth, and affordability) confronting first-time buyers, who are essential cogs in the housing market since they enable move-up/move-out opportunities for existing homeowners.
The median existing home price for all housing types increased 5.6% year-over-year to $234,000. That was down slightly from $236,300 in June. Given limited inventory levels, notable price declines are unlikely in the near term.
Total inventory declined 0.4% to 2.24 million existing homes for sale, which translates to a 4.8-month supply at the current sales pace versus 4.9 months in June.
Weak affordability conditions have the potential to lead to a slowdown in sales in coming months, particularly if mortgage rates rise. On the latter note, the National Association of Realtors suggested the prospect of higher mortgage rates and home prices have likely been factors in the recent strength, implying that some demand has been pulled forward.
What to Watch for This Week
The Case Shiller Index for June should indicate an annual price increase of 5% with the Seattle market up by 7%.
U.S. New Home Sales in July will come in at around 510,000 (SAAR) from 482,000 the prior month.
Consumer Confidence is likely to drop a little from the July figure of 90.9. Look for 89.0.
U.S. Initial Unemployment Claims are likely to settle down a little. Expect a figure of around 275,000.
The second estimate for GDP in Q2 is likely to show that the US grew at a rate of 3.1% – up from 2.3% in the first estimate.
The NAR Pending Home Sales Index for July is likely to indicate a turnaround with the number up by 1% – from the minus 1.8% seen in June.
Income & Spending in the US in July should show both up by 0.4% from the June number.
Consumer Sentiment is likely to remain at 92.9 – the same as seen in July.